The biggest obstacle facing young entrepreneurs – or, in fact, entrepreneurs of any age – is often that they don’t have the funding to turn their business idea into a reality. There are always upfront costs to manage as well as ongoing expenses which require a pool of resources. While it can seem impossible, there are several finance options available which can help; it’s just a question of making sure you choose the best option for your requirements and circumstances.
If you’re confused about the finance options available to you, here are some of the most widely used for your consideration.
The US government is keen to help small businesses to thrive and through the Small Business Administration (SBA) works with approved lenders to help entrepreneurs secure the loans they need. The SBA does this by reducing the risk that lenders face when lending money to entrepreneurs so that the qualifying criteria can be relaxed. There are several types of SBA loan programs, including the 7a loan, which is ideal for young entrepreneurs with very little or no collateral to offer.
Traditional lenders like credit unions and banks are the most well-known funding route, but many entrepreneurs believe that they are difficult to secure funding from. However, in reality, the banks and credit unions are funding startups and lending money all the time but are less likely to fund very unusual or experimental ideas. If your business plan is solid and the bank or credit union can see that it has a real chance of success, you may be in luck.
An angel investor is an individual who is looking to invest in a business for the long term and therefore tends to have less money to invest, while a venture capitalist may be an individual or a corporation and is often more focused on seeing a swift and significant return on their investment. Venture capitalists are often drawn to innovative and experimental businesses which can be scaled up to generate big potential profits. If you can show that a business works on a small scale, a venture capitalist can help you maximize its potential through both financial investments and by providing business mentors who specialize in your industry. This kind of experience and support can be just as valuable as the money you receive. When pitching to either an angel investor or venture capitalists, a solid business plan is absolutely essential.
It’s entirely possible that you might not want to sacrifice shares in your business for investment before you’ve even started, so you may wish to consider taking a loan from friends or family. This removes the need for credit scoring, collateral or risk associated with other options. The funding will probably be smaller, but interest rates will probably be more generous, and you won’t have pressure from shareholders dictating how the money should be spent. Having said that, a loan from friends or family should not be viewed as any less of a binding contract than other loans and should always be made legal in written form. You’ll need a contract which states how much you’ve borrowed, the repayment plan and any interest.
This content was originally published here.
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